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Thu October 21 2021

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Taxpayers lend another £30m to prefab start-up

28 Sep A manufacturer looking to crack the UK modular housing market has borrowed a second tranche of £30m from the government as it seeks to start making a profit.

An Ilke home comes off the production line
An Ilke home comes off the production line

Ilke Homes, which makes volumetric housing units in a factory in Knaresbrough, is ultimately controlled by the Emirate of Abu Dhabi, via its London-based private equity firm TDR Capital.

Keen to see prefabricated housing take off commercially to provide cheap housing for the masses once again, the UK government gave Ilke Homes a £30m loan in 2019 via Homes England’s home building fund.

Incorporated in 2017, Ilke Homes has so far filed aggregate losses of £50m before tax.

Now Homes England has approved a further £30m loan to the venture, in the confidence that – with enough government backing – Ilke will deliver a return.

The Ministry of Housing appears to be enthusiastic about Ilke Homes. In November 2019, announcing the first £30m loan, the ministry stated in a press release: “By next year, 2,000 modular homes will roll off Ilke Homes’ production line, rising to 5,000 homes a year within the next five years – making Ilke Homes a top 10 UK housebuilder.”

In the event, Ilke Homes fell short on that hype from the government. In 2020 Ilke Homes made a little more than 1,500 units.

At the same time as turning to the taxpayer to grow Ilke’s debt, TDR Capital has also reduced its own position in the business, selling £30m of equity to new investors, including Middleton Enterprises, Sun Capital and social housing landlord the Guiness Partnership – an Ilke customer.

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Guinness has reportedly paid £10m for a 4.3% stake in Ilke. It joins Places for People as a customer shareholder of Ilke Homes.

Ilke Homes said the new round of financing – £30m of debt and £30m of equity – will support the company’s growth beyond its secured pipeline of over 3,000 homes and enable investment in more factory automation. The plan is to accelerate capacity to deliver up to eight homes a day, up from two today, and bring down manufacturing costs in the process.

That 2019 claim that it would be making 5,000 homes within five years has now been upgraded to 10,000 homes with five years.

The terms of the government loan have yet to be disclosed, other than the boiler-plate statement that “interest is payable at a transparent, agreed variable rate”.

Justifying the use of public money in this way, Homes England chief investment officer Harry Swales said: “Manufacturers like Ilke Homes are vital if developers are to build new sustainable homes at the pace and scale the country needs. This debt facility from the Home Building Fund shows our commitment in increasing productivity and efficiency in construction to meet government’s housing delivery ambitions.”

Stephen Stone, the former Crest Nicholson chief executive who sits on the board of Ilke Homes, said: “The fact that our own clients continue to either invest or increase their stakes in the company is testament to the dynamic approach Ilke Homes has taken to house building in the last three years. Faced with regulatory pressures and a requirement to meet ESG criteria, we are finding that investors are increasingly scaling up their MMC strategies.”

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